Sit-Down

Woody Heller on Investment Sales and New Demand for Lower Manhattan

The investment sales market, most brokers agree, has been heating up over the past 12 months. Approximately $25.8 billion in commercial properties changed hands last year, a turnaround that represented an 88 percent increase over 2010. But while the positive uptick is easily verifiable, what happens next for Manhattan’s investment sales market is still up in the air.

Accordingly, The Commercial Observer set out to speak with the real estate industry’s most accomplished capital markets and sales practitioners to learn what’s in store for 2012. Over the next several days, we’ll post interviews with heavy hitters like Richard Baxter of Jones Lang LaSalle, J.D. Parker of Marcus & Millichap, Darcy Stacom and William Shanahan of CBRE and Peter Hausperg of Eastern Consolidated. But, first, after the jump, none other than Woody Heller of Studley.

wheller a1 Woody Heller on Investment Sales and New Demand for Lower Manhattan

Woody Heller. (Illustration by Joao Maio Pinto)

The Commercial Observer: In 2011, there was quite a bit of activity between the second and third quarters, but then it became sluggish between the third and fourth. Why did that happen?
Mr. Heller: Well, let me say it this way: This is the first time that I’ve gone away for Christmas before Christmas, so …

Because you anticipated that slow down, or was something else brewing?
It was just the rhythm of the deals we were working on. So it could be completely personal to us, it could be symbolic to what was happening in the rest of the market. I think that it was less year-end-weighted than normal, but I still think it was a pretty powerful year. And I think that this year will continue to be very much the same, perhaps for slightly different reasons.

With regard to year-end sales activity, is it partly just the luck of the draw, or was something else influencing buyers and sellers last year?
I think a little bit luck of the draw. I also think the world began to feel very uncomfortable in August when the European debt crisis began to come into shape. So, there was a lot of uncertainty that came toward the end of the year, and you could argue that either way: either having made it better for real estate or worse for real estate. On the one side, uncertainty is great for real estate because it’s the absolute, you know, so when you’re scared, where are you going to put your money? And, if you’re a European guy and you think your currency is about to go to hell, or the whole economy is about to potentially implode, you want to pull stuff out and get it to a better spot.

Tech companies were active in Manhattan last year. How did that affect pricing overall?
Last year, New York became the second-largest recipient of intra-capital funding as a city—second to Silicon Valley. Traditionally, the second-largest recipient had been Boston, and had been for a long time. So that’s very exciting, and it shows up in a number of ways. It’s no coincidence that Midtown South has the lowest vacancy rate in the country. Why? Because that’s where the tenants are heading.
Well, as these tenants head to Midtown South, and the vacancy rate goes down, which obviously means the rents go up, where do the tenants who are getting priced out of Midtown South go? And the answer is, they go downtown. And so, downtown, a market that has been somewhat sleepy and perhaps a tad overlooked in the last decade, is now the fortunate recipient of a lot of the tenants who are being displaced in Midtown South.

Will Downtown Brooklyn feel that ripple effect after it moves across lower Manhattan?
Yeah, you’re a step ahead of me. We were touring a building there recently, and when we walked outside, one of my younger guys said to me, “You know, I could barely restrain myself from saying, if you live Brooklyn, raise your hand.” And so the answer is, a lot of the workers do work in Brooklyn. Brooklyn is enjoying a remarkable reissuance.

You were involved in the development sale of 400 Park Avenue South. Considering how few development sites have traded, what made that site stand out?
That’s a site that wasn’t in any way in stress. There wasn’t a lender that was taking a discounted payoff. You know, the owner made an enormous profit based upon what they had paid for the site, and I think it was just a family decision by the family that had owned the site that they were happier enjoying the appreciation of the land than going forward and developing it. It’s not always rational reasons that back up those decisions.

Jsederstrom@observer.com